Govt sets aside $1 bln for R&D tax credit

The government has set aside about $1 billion over the next four years for tax rebates from the research and development tax credit, which Innovation Minister Megan Woods hopes will spur on the level private sector R&D investment.

The pre-announced tax credit lets businesses claim 12.5 cents in the dollar back for every dollar they spend on R&D, provided that bill is more than $100,000 a year. Woods announced the tax credit, which the Labour-led government prefers over the Callaghan Innovation grant scheme of picking winners. Callaghan's Growth Grants scheme will be phased down as the tax credit comes in, from next April.

The budget gave the expected scope of the R&D credit, with the Crown putting aside $1 billion over the forecast horizon. Some $71.2 million is earmarked for the current year, rising to $350 million by 2022. That figure will also cover the cost of implementing the programme.

“This system will help us transition away from the current growth grants model, which is available to a narrower range of firms,” Woods said in a statement. “This represents a significant increase in the amount available to help smart Kiwi businesses to innovate.”

The budget documents identified the tax credit as a fiscal risk, given the lack of data available for forecasting, and international experience showing the “costs of R&D tax credits can be significantly higher than expected”.

The budget also cuts $2.4 million from the June 2019 year from the accelerator innovation fund, which was delivered through the Ministry of Business, Innovation and Employment, and is currently under review.